The public sector supplies a club good financed by either a head tax or proportional taxation on exogenous incomes in a democracy. For a class of utility functions and club quality functions, the optimal club quality is independent of the income distribution, and hence of the identity of the...

I model a single-club economy with heterogeneous consumers as an aggregative game. I give a sufficient condition, normality of demand for the club good in full income, for the existence and uniqueness of a Nash equilbrium by the Cornes-Hartley (2007) method. Then, confining attention to club...

This paper develops a hierarchical principal-agent model to explore the influence of corruption, bribery, and politically provided oversight of production on the efficiency and level of output of some publicly provided good. Under full information, an honest politician acheives the first best...

Since Kahneman and Tversky (1979), it has been generally recognized that decision makers overweight low probabilities and underweight high probabilities. Of the several weighting functions that have been proposed, that of Prelec (1998) has the attractions that it is parsimonious, consistent with...

Evidence shows that (i) people overweight low probabilities and underweight high probabilities, but (ii) ignore events of extremely low probability and treat extremely high probability events as certain. Decision models, such as rank dependent utility (RDU) and cumulative prospect theory (CP),...

Tax evasion analysis is typically based on an expected utility theory (EUT) framework. However, this leads to several qualitative and quantitative puzzles. Given actual probabilities of audit and penalty rates the return on evasion ranges from 91-98 percent. So why don’t most of us evade?...

The paper surveys the ‘old’ and ‘new’ political macroeconomics. In the former we consider how governments can be seen to manipulate the economy as to satisfy opportunistic or ideological motives, thereby creating opportunistic or partisan political business cycles. We examine how the...

We develop a general theory of intertemporal choice: the reference-time theory, RT. RT is a synthesis of ideas from the hyperbolic model and subadditivity of time discounting. These models are extended to allow for a reference point for time as well as wealth. RT is able to account for all the 6...

In a critique of the Loewenstein and Prelec (1992) theory of intertemporal choice, al-Nowaihi and Dhami (2006) point out to four errors. One of the alleged errors was that the value function in prospect theory is decreasing. But it is in fact increasing. We provide a correction and a formal...